The city of Boulder is considering what its energy future will look like. The goal it to acquire "clean, local and reliable" energy in the future, and one voter-approved option is to start a municipal utility. For more information on the history of this decision, click here.

Franchise negotiations between Boulder, Xcel break down over ballot options

City, utility each blame the other for impasse over energy agreement

By Laura Snider, Camera Staff Writer

Posted:
07/14/2011 11:36:48 AM MDT

Updated:
07/14/2011 10:47:00 PM MDT

The Xcel Energy-owned Valmont Power Plant in Boulder, as seen from the air today. Officials with Xcel this morning announced that Boulder has broken off negotiations with the utility. (MARK LEFFINGWELL / CAMERA)

What: The Boulder City Council will discuss possible ballot questions for November's ballot, including a package that would ask voters for permission to start a municipal utility.

When: 5 p.m. Tuesday

Where: Council Chambers in the Municipal Building, 1777 Broadway in Boulder

The proposed wind deal

Last month, Xcel Energy proposed to have a contractor add capacity to a wind farm that is already being built for Xcel customers. The renewable energy credits from the added capacity -- which could range from 100 megawatts to 200 megawatts -- could be purchased by Boulder to offset its energy use. The price of the credits would equal the difference between the cost of producing electricity with wind generators compared to the cost of producing an equal amount of electricity by burning primarily natural gas.

In the beginning, Boulder would pay additional money for the wind energy, but if natural gas prices rise, the city could actually get money back. Boulder would also be on the hook for "curtailment costs" -- which are paid to the wind provider when Xcel cannot use all the wind produced by the turbines --and the "integration cost" of adding the additional wind into Xcel's system.

Negotiations between Boulder and Xcel Energy broke down on Thursday, essentially killing a proposal floated by the utility to build the city a wind farm in return for a new 20-year franchise agreement.

The two parties could not resolve differences over what choices voters should have in November. All nine members of the City Council have indicated that they are not willing to put a franchise agreement on the ballot that is not linked to the proposed wind deal. Officials at Xcel Energy, on the other hand, have been insistent that voters should have the option of approving the franchise agreement without approving the wind deal.

Click here to read the city of Boulder's entire statement.

"The reason we want to separate (the issues) is that anytime you acquire new renewable energy generation -- even very cheap wind -- it's going to cause a rate increase," said Paula Connelly, Xcel's managing attorney. "And so, we don't know whether our customers would be satisfied with that."

Last year, Boulder allowed its franchise agreement with Xcel Energy to expire so that the city could explore other options for its energy future. For months, the City Council has been considering whether the city can best meet its goals by negotiating a deal with Xcel Energy or by creating a municipal utility.

"We have a series of goals -- more local control, greener energy, stabilizing rates -- the franchise by itself doesn't meet any of these goals," said City Attorney Tom Carr.

Last month Xcel proposed building a wind farm for Boulder that could provide about 90 percent of Boulder's energy in nine years, according to the utility. The city would have been responsible for purchasing "renewable energy credits" from the project by paying the difference between the cost of producing the wind energy and the cost Xcel would have paid to produce an equal amount of energy by primarily burning natural gas.

Initially, the city would owe Xcel money, but if natural gas prices rise in the future, as Xcel has projected, the city could actually get money back from Xcel. On the other hand, if gas prices were to drop, the city could be on the hook for a lot of cash, Carr said.

Click here to read Xcel Energy's entire statement.

In the weeks since Xcel unveiled its wind proposal, city staffers have negotiated with Xcel over some of the details of the offer, including how to limit some of the city's financial risk and how the cost differences between the wind and natural gas sources will be measured. But on Thursday the two parties announced that talks had ended.

"We feel strongly that it is important to provide Boulder citizens with all the options available, pursuant to the city charter, let the voters decide," Xcel officials said in a statement released Thursday morning.

But City Councilman Matt Appelbaum said he believes the City Council has a responsibility to carefully vet proposals before they go to the voters.

"My job is to make sure that we do not put something on the ballot that is bad for the city in the long-term," he said. "It's a big deal to put something on the ballot. It's a very big deal."

Appelbaum said that a new franchise agreement without a wind deal would certainly be bad for Boulder, but he said he's not so sure the wind deal would be good, either.

"We would get 100 percent of the risk and 0 percent of the control," he said.

David Miller, chair of the Boulder Smart Energy Coalition -- a group that is concerned with the risks involved in forming a municipal utility -- said Thursday that the breakdown in negotiations between Xcel and the city was "terrible news."

"I think leaving voters with only one option -- municipalization -- is no choice at all," he said. "I think both parties need to go sit down at the table again and figure this out."

Steve Pomerance, a former city councilman who has pushed hard for the city to add more renewable energy to its supply, said he agrees with the city that the franchise agreement should not be put alone on November's ballot.

"There is no benefit to signing a franchise and a huge potential cost because then you're' stuck with Xcel," said Pomerance, who also writes columns for the Camera.

Karey Christ-Janer, a Boulder landlord who has been following the council's energy discussions, said she thinks the city shouldn't give up on the idea of purchasing renewable energy credits from a wind farm, even if that farm is not associated with Xcel.

"I'm hoping there will be another wind deal," she said. "It could be just like (Xcel's) wind deal, but with no franchise."

Ballot language:
In November, Boulder voters narrowly approved two ballot issues related to starting a municipal utility: 2B and 2C. You can read the full text of the ballot language on the city's website.

Issue 2B asked voters to increase the existing utility occupation tax by up to $1.9 million a year. The money from the tax, which will be collected from customers by Xcel Energy, will be used by the city to cover the costs of moving forward with forming a municipal utility, such as more studies and legal fees.

Issue 2C asked voters for permission to actually form a municipal utility. The language allows the city to sell the necessary bonds to take over the current system from Xcel, but it states that the city may only move forward with forming a municipal utility if it can start the utility with rates that are the same or cheaper than Xcel's.

Helpful Links:City of Boulder: This is where the city is aggregating all of its documents, meeting information and updates on Boulder s energy future: bouldercolorado.gov/energyfuture

RenewablesYes: This website is run by the group of volunteers that lobbied local voters to pass a utility occupation tax in November to replace the expiring franchise fee from Xcel Energy. Now, the group is advocating for the city to secure a cleaner, more local energy supply. renewablesyes.org

Xcel Energy: Xcel is the largest utility in Colorado, and it currently provides electricity to Boulder. The city s 20-year franchise agreement with Xcel expired at the end of 2010. xcelenergy.com

Boulder Smart Energy Coalition: A citizen group that supports the city's general energy goals but has concerns about the risks involved with starting a municipal utility. bouldersec.com

SmartGridCity: Xcel Energy has installed a smart grid in Boulder. This web site provides more information on that initiative. smartgridcity.xcelenergy.com

Colorado Association of Municipal Utilities: This Colorado Springs-based group represents the state s 29 municipal utilities, which include utilities based in Lyons and Longmont. coloradopublicpower.org